Citizens' State Bank v. Rowe

• Decision Date: 28 August 1915
• Docket Number: 3681
• Parties: CITIZENS' STATE BANK OF NEWTON, IOWA, Plaintiff and respondent, v. H. S. ROWE et al., Defendants and appellants.
• Court: South Dakota Supreme Court

36 S.D. 151, 153 N.W. 939 (1915)

CITIZENS' STATE BANK OF NEWTON, IOWA,

Plaintiff and respondent,

v. H. S. ROWE et al.,

Defendants and appellants.

South Dakota Supreme Court

Appeal from Circuit Court, Minnehaha County, SD

Hon. Joseph W. Jones, Judge

#3681--Reversed

Hanten & Hanten, Perrett F. Gault

Attorneys for Appellants.

Joe Kirby

Attorney for Respondent.

Opinion filed August 28, 1915; Rehearing denied

POLLEY, J.

This action is brought to recover on a promissory note. The note was originally payable to the South Dakota Mausoleum Company, but from the indorsements thereon, appears to have passed through the hands of various parties until it reached plaintiff, who is alleged to have been the owner and holder thereof at the time the action was commenced.

It is alleged in the answer, and it appears from the testimony, that, at the time of the execution of the said note, the International Mausoleum Company was the owner of a certain United States patent. The South Dakota Mausoleum Company was organized for the purpose of purchasing the exclusive right, with the exception of a certain specified, locality, to use said patent in this state. The consideration to be paid for said right was $43,000, but, with the exception of $3,000, said company was without funds. Appellant was one of ten persons who organized the South Dakota Mausoleum Company, and, for the purpose of enabling said company to pay for said patent, each of said persons executed three individual notes for equal amounts, payable to the South Dakota Mausoleum Company, and all aggregating $40,000. These notes were indorsed by two of the members of said company as the president and secretary thereof, in the name of the South Dakota Mausoleum Company, and delivered to William I. Hood, president, and G. A. Smith, secretary, of the International Mausoleum Company, who, in consideration therefor, assigned said patent right to the South Dakota Mausoleum Company. The answer alleges that the plaintiff is a banking corporation organized in the state of Iowa, and that it had not filed its articles of incorporation in this state; that said note did not have stamped or written across its face the words "Given for a patent right or right claimed to be a patent right," as required by the provisions of chapter 140, Laws of 1905; and that, because of the absence of such stamp, said note was void in its inception. It further alleged that the patent involved had been declared void by a federal court, and that, for that reason, the consideration had failed. It is also alleged that the International Mausoleum Company, the grantor of the patent right, is a foreign corporation, and that, at the time of said assignment, it had not complied with the foreign corporation act of this state; that all of said facts, and defects in the said note, were known to plaintiff at the time it took the same, and, for that reason, plaintiff was not an innocent purchaser thereof and is not entitled to recover.

At the close of all the testimony, defendant moved the court to direct a verdict for defendant upon all the issues, except as to whether plaintiff was an innocent purchaser or not, while plaintiff moved for a verdict upon all the issues. The court denied defendant's motion and directed a verdict for plaintiff. Defendant assigned error and appeals.

Numerous assignments are argued by appellant, but, as we view the case, it is necessary to determine but two questions: First, was plaintiff an innocent purchaser? And, second, does the failure to write or stamp upon the face of the note the words, "Given for a patent right or right claimed to be a patent right," render it void in the hands of the original payee and of all who take it with knowledge of the purpose for which it was given?

In reply to the first question, respondent contends that the note was not given in payment for a patent right nor any interest therein, but that it was given to the South Dakota Mausoleum Company for the purpose of paying for appellant's interest therein, and does not come within the provisions of chapter 140, Laws of 19o5, but that, in any event, plaintiff was a purchaser in good faith for value before maturity in the ordinary course of business, and therefore not subject to defects not apparent upon its face. The facts do not support this contention. The undisputed evidence shows that the execution of the note, the indorsement thereof by the South Dakota Mausoleum Company, the delivery thereof to the International Mausoleum Company, and the delivery of the assignment of the patent to the South Dakota Mausoleum Company all took place at the same time. In fact, all of these acts constituted but a single transaction. The International Mausoleum Company cannot deny that it took the note (with others) in payment for the patent right. In fact, it received no other consideration therefor except a cash payment of $3,000. The law makes it the duty of "every person," who takes an obligation like the one involved, to write or stamp in red ink across the face thereof the purpose for which the same is given, and makes "any person" who takes such an obligation that is not so marked guilty of a misdemeanor and liable to a fine. The president and secretary of the International Mausoleum Company were present when the note was executed by appellant and indorsed by the South Dakota Mausoleum Company. Therefore it was as much the duty of the International Mausoleum Company to see that the statute was complied with as it was the duty of the South Dakota Mausoleum Company, and the International Company was just as guilty under the statute as was the South Dakota Mausoleum Company; therefore the International Mausoleum Company was in no better position than the original payee.

The note was indorsed by the International Mausoleum Company, by V. L. Maytag as president of that company, and it appears that said F. L. Maytag was also president of the plaintiff at the time plaintiff purchased the note. Now Maytag, being president of the International Mausoleum Company, had knowledge of the fact that the note had been executed contrary to the provisions of the statute, and, as a corporation is charged with the knowledge possessed by its officers, the plaintiff is charged with the...